The Blade Division of Axe Company Produces Hardened Steel Blades

question 52

Multiple Choice

The Blade Division of Axe Company produces hardened steel blades.One-third of Blade's output is sold to the Forestry Products Division of Axe; the remainder is sold to outside customers.Blades' estimated operating profit for the year is: The Forestry Division has an opportunity to purchase 10,000 blades of the same quality from an outside supplier on a continuing basis.The Blade Division cannot sell any additional products to outside customers.Should the Axe Company allow its Forestry Division to purchase the blades from the outside supplier at $1.25 per unit?

• A)No; making the blades will save Axe $1,500.
• B)Yes; buying the blades will save Axe $1,500.
• C)No; making the blades will save Axe $2,500.
• D)Yes; buying the blades will save Axe $2,500.

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Definitions:

Conditional Sale Contracts

Agreements where the sale of goods or property is conditional upon certain terms, typically the buyer making payments over a period, with the title remaining with the seller until conditions are met.

Purchase Price

The amount of money paid to acquire a good, service, or asset.

Combined Equivalent

The unified outcome or measure that represents the aggregate result or impact of several elements.

Scheduled Payments

Payments that are planned and set to occur at regular intervals over a specified period.